From face rent to effective rent
Face rent alone does not show the economic impact of free rent or a tenant improvement allowance. Effective rent spreads the entered net rent consideration across the full term.
- Scheduled rent is calculated from area, starting rate, escalation, and term
- Free-rent months remove the applicable opening scheduled rent
- The TI allowance is treated as an entered concession for this planning view
- Net-effective rent equals net rent consideration divided across the lease term and area
Use one concession definition
Effective-rent conventions vary. Landlord underwriting may include present value, commissions, capital costs, and discount rates that a tenant comparison excludes.
- State whether the analysis is tenant or landlord oriented
- Do not double-count TI reimbursement and tenant costs
- Model operating expenses separately
- Use discounted cash flow when timing materially affects the decision
Key takeaways
- A simple tenant-side effective-rent estimate can spread scheduled base rent less entered concessions across the full lease term.
- Free-rent value depends on the scheduled rent during the abatement months.
- Effective-rent conventions differ, so assumptions should be disclosed with the result.